The Bunge agreement will expand joint venture-owned oil production
capacity at Solazyme Bunge Renewable Oils from the current 100,000
metric tons under construction in Brazil to 300,000 metric tons by
2016 at select Bunge owned and operated processing facilities
worldwide.

Under the terms of the ADM agreement, Solazyme will initially target
the production of 20,000 metric tons of oil in 2014, with an aim to
increase production to 100,000 metric tons in subsequent years.

“After building a strong commercial relationship together, we
believe there is a broader scope of opportunities ahead of us,” said
Ben Pearcy, Managing Director, Sugar & Bioenergy, and Chief
Development Officer, Bunge Limited. Specifically, in this round of
announcements, in edible food oils.

Let’s look at the scope of Bunge’s operations and current customer
base, in this regard.

In their latest quarterly report, Bunge posted $2.395 billion in
edible oils sales, representing 1.692 million tons of product sold
at $1,415 per metric ton.

In that context, this deal represents $424 million in potential
revenues at current prices, using the average edible oils prices
that Bunge is currently generating.

Over at ADM

The ADM deal is much smaller, initially, but consistent with
Solazyme’s approach to incremental scale-up. It’s capital-light,
using the plant that ADM built in order to produce Mirel (PHA)
bioplastics in its Telles joint venture with Metabolix, which was
recently unwound.

But what is the fundamental nature of both deals?

Fundamentally, the market of customers is beginning to see Solazyme
as a particularly efficient hybrid of agroscience company and
grower. In the old model, companies like Bunge and ADM depended on
companies like Monsanto, Dow AgroSciences, and DuPont’s Pioneer
HiBred to come up with seed technologies that optimized oil
characteristics, and farmers to grow the oilseeds via their
“programmable” farmland.

The old model was slow-moving in product development, slow-moving in
adoption, complex in its organization, and subject to risk-building
pressures ranging from diesel prices to weather.

For some time, Solazyme has been talking up a comparison to
Monsanto, Dow and DuPont – but this week’s deal-making brings the
other aspect of the company into a clearer light. That is the
ability of the company to replace, via an industrial process, the
grower in the field – through large-scale capacity deals that bring
tailored renewable oils to market. The company – well, it’s a
hybrid, and comes with its own flavor of doublecross hybrid vigor.

Solazyme's platform, compared to traditional agroscience
companies

Offtake for growers, vs processors

There has been some bemoaning in the investor and analyst community
about of the lack of customer offtake deals within the Solazyme
universe. And it’s true – they have a number of contracts, but
nothing that would, today, provide complete offtake for the kind of
capacity that the company has now set out to build.

But, is that really the right question? After all, Warren Buffett
doesn’t have offtake agreements for shares in Berkshire Hathaway,
either. It is not offtake, but demand that is the question –
especially for growers.

After all, growers don’t generally lock in 100% of their output in
offtake deals with end-use customers they might find, one supposes,
at weekend Farmer’s Markets. They form relationships with the next
set of companies in the supply chain — the processors, with whom
they form complex relationships and trades.

Solazyme's complex universe of molecules and
applications, seen against the backdrop of everyday life

Solazyme's complex universe of molecules and applications, seen
against the backdrop of everyday life
The major traders and processors — the famed ABCDs — ADM, Bunge,
Cargill and Dreyfus, they are likely to form a key route to market,
for hybrids like Solazyme, just as they do for growers and the seed
companies who serve them.

And it’s not hard to see why there’s interest in the new model, from
the processor side. It’s the opportunity to access a more tailored
product, faster, and eliminate the crushing and extraction steps.

At bunge.com, they make the case: “Bunge knows that today’s consumer
have a higher level of health concerns than ever before. Even when
it comes to indulging, customers continue to look for ways to feel
better about the foods they eat. These reasons, combined with the
ban on trans fat in several areas, are why we offer multiple oil and
shortening solutions.”

What do they see? In companies like Solazyme, better solutions
for their customers through a microbial platform that grows oil in
one step – versus the old route of grow, crush, extract. They see
the hybrid vigor.

Solazyme vs Metabolix

The Metabolix problem is part of what is spooking investors, when
they consider Solazyme.

Both companies had a promising biotechnology that attracted
name-brand partners to establish sizzling joint ventures. In the
case of Metabolix, it has never been made entirely clear why the
order volumes for Mirel bioplastics never reached very attractive
levels in the partnership with ADM. Ultimately, what started as a
landmark collaboration eventually unwound.

But let’s make the difference clear. Mirel was a single molecule,
and a novel one. Solazyme has a platform technology in
triglycerides, not a single waffle iron that runs into problems
finding markets for all the waffles when they produce them at
industrial scale.

Triglycerides are the dominant form of edible oil, here on Planet
Earth – demand is abundant, global and obvious. The only questions
are price and performance.

The best judge of those? The companies that see all the prices both
upstream from growers and downstream with customers, and measure
customer demand. In this sector, that’s the ABCDs.Bunge and ADM: so whadda they know?

In this case, the majors are betting with dollars and with their
existing capacity. Should you bet along with them? Well, you know
your portfolio investment goals better than we.

Bet against Solazyme’s understanding of the market? A young, small
company just getting on its feet as an industrial-scale concern.
Sure, that would be reasonable.

Bet against Bunge’s understanding of the edible oils market? Bet
against their understanding of what customers need and what
production processes will be the winners in the long-term?

Hmmm, you are betting against a market-maker, whose information is
bound to be more complex, production-data based and richly
understood than your own. Bet at your peril.